APP hopes to reach debt deal by May
APP hopes to reach debt deal by May
Dow Jones, Jakarta
Asia Pulp & Paper Co. hopes to sign a formal US$6.5 billion
debt restructuring plan with creditors of its Indonesian
operating units by May 31, later than a previous deadline set for
the end of 2002.
The Indonesian Bank Restructuring Agency, or IBRA, which is
leading the restructuring, and APP have completed an outline
restructuring plan, which the company released in a statement
Thursday. The debt plan gives APP's myriad of creditors financial
incentives to agree to the restructuring by May. 31.
Resolving the Indonesian company's debt is key to moving
forward with restructuring APP's total $13.9 billion borrowings,
among the largest in the emerging markets.
The company - which is based in Singapore and has operations
in Indonesia and China - called a debt standstill in early 2001
amid falling global paper prices.
Since then APP's creditors - which include hundreds of
organizations ranging from individual bondholders to banks and
export credit agencies - have been involved in often fractious
negotiations among themselves and with the ailing paper company.
Some creditors have tried to recoup their loans through the
courts amid allegations APP has continued to spend company money
on questionable transactions, but the legal action has made
little headway.
Earlier this year, IBRA took control of the restructuring of
APP's Indonesian-based companies, PT Indah Kiat Pulp & Paper, PT
Pabrik Kertas Tjiwi Kimia, PT Lontar Papyrus and PT Pindo Deli
Pulp & Paper.
The government agency is under huge pressure to get back
around $1 billion owed by APP to help ease the state's growing
budget deficit.
IBRA had earlier set the end of this year as a deadline for
all creditors to agree to its outline debt restructuring plan.
But the lengthy legal process involved in drawing up the plan
in consultation with hundreds of creditors meant this was
impossible, said a person close to the talks.
The plan released by APP Thursday says creditors that sign the
deal by end-May will get accrued interest repaid in cash quicker
than creditors that miss the signing deadline.
Many of the details in the plan have already been released by
APP. The principal and interest for about $1.2 billion of the
Indonesian operations' debt will be repaid over 10 years, while
for $3 billion of the debt only interest will be paid over 10
years, and that debt will then be refinanced.
A further $2.3 billion of debt will be refinanced with a
convertible bond. The plan assumes APP will earn an average of
$750 million a year before interest, taxes and depreciation.
But Thursday's release gives more details on how creditors
will monitor the company during the restructuring.
APP must make annual payments from cash-flow into an escrow
account that will be used to repay interest and principal to
creditors.
Between 2003 and 2005, APP must make an annual payment of $360
million, rising to $420 million between 2006-2007, and then $480
million from 2007-2012.
Creditors will be able to call APP into default if the
company's payments fall below $250 million for more than one
year.
A majority of 75 percent of creditors, including IBRA, must
vote for a default for it to become effective. In this case,
creditors will have the right to convert their debt into shares
of the Indonesian companies.
The plan allows for an international consultancy firm to
review APP's management during restructuring. APP's annual
capital expenditure is capped at $180 million, after which
creditors must give approval.
A panel of experts appointed by the creditors and APP will set
the prices that the company should pay for wood supply to keep
control of costs. Creditors are concerned over the declining
supply of APP's access to legal sources of wood in Indonesia.